Market Analysis

Game Over

Game over. Occam’s Razor: The simplest explanation is often the best one. Central banks will never extract themselves. Whether they ultimately end QE is besides the point. They won’t reduce their balance sheets. They can’t. Powell’s “performance” yesterday was not an accident. He’s been running on the same theme of offering absolutely zero specifics. Why? 3 reasons: 1. There are none as there is no plan. 2. To maintain flexibility and not to be held accountable or anything 3. To not upset markets.

We saw this recently when he actually got challenged on MBS and QE. He couldn’t and wouldn’t offer a rationale as to what is actually economically accomplished by it:

Yesterday he clarified his “transitory” definition :

More importantly:

He doesn’t know. And why would he? There is zero precedent for this much combined liquidity from the fiscal and monetary side along with a rapid economic reopening with consumers’ pockets stuffed with free money from the government.

To inflate the stocks market and the housing market was the goal. The Bernanke script:

Now the bubble has gotten so large they can’t risk anything popping it:

Why? Because popping the largest asset bubble ever would result in a catastrophic reset, not only a recession, but a depression.

The reality is debt levels have so exploded in the past 13 years any pre GFC type interest rates (which were historically low back then) would collapse the entire system. They know it. I know it, you know it. The entire system is predicated on debt expansion and cheap money to sustain it. That’s it.

This is the only choice:

The only way to avert disaster is to keep expanding wealth inequality, disconnect asset prices from the economy ever further and keep telling everyone they do it for the downtrodden while the bottom 50% are the ones actually taking the bath with permanent price increases while their wages are not keeping up:

You will own nothing but be happy.

Yes it’s all absurd, but that’s the trap they’re in. Hence all this waffling about tapering is just performance art. Powell was again completely dovish and we see the reality reflected in real yields:

It’s the grand distortion that forces everyone and everything into equities.

The Rydex bear/bull ratio has reached a new all time low, everybody and their mothers are long stocks:

And they keep buying the dips more aggressively than ever:

Hence asset prices are on a permanent expansion path:

But earnings. Yes earnings are great. Why wouldn’t they be? We just had $10 trillion shoved into system. And now more stimulus in form of an infrastructure deal. Yet we must keep running emergency measures at a rate never seen before. Come on.

Powell again made it clear that inflation will not be a deciding factor to taper or raise rates. Only full employment. An entirely disingenuous argument as the Fed cut rates 3 times in 2019 when unemployment was at 50 year lows of 3.5%. Powell cites uncertainty. There’s always uncertainty. On this basis, and now with climate change self anointed as the next big central bank portfolio task the stage is set for QE to never end. The BOJ is already onto buying “green” bonds.

It will never end in our lifetimes unless something breaks in the now held hostage organic economy and/or markets which are 100% under the thumbs of central bank distortion and manipulation.

The sad truth is: Without continued central bank intervention everything would collapse. One can only imagine the absolute carnage in global markets if central banks were to stop QE and raise rates by a measly 1/4 point tomorrow. You all know it. And the Fed knows it. Hence this pathetic song and dance show that will continue for months and months before they actually will taper.

And what does taper actually mean? Nothing. If they reduce bond buying by $10B or $20B or even $30B per month they’re still running a larger QE program than during the GFC. It’s insane, especially given the ever more glaring dichotomy:

No, if Powell is smart he’ll gracefully exit next February and let someone else deal with the epic drama that is to unfold over the next few years. After all it would be a brilliant financial decision on his part, he could exit his all long stock portfolio and make a killing on the speaking circuit and laugh himself into the big fat book deal. Working title: The Savior. How I made myself and the top 1% really rich. No, that won’t be the title, but it may as well be, for that is the real effect of his policy.

The most financially conflicted Fed Chair in history, who financially benefits from every rally to new highs, has zero incentive to taper before his term is up. It’d hurt his personal financial net worth. And given Occam’s Razor, perhaps that’s the most obvious answer for the man who has no answers as to why he keeps printing despite an increasing chorus of people from even BlackRock on down urging him to stop:


All eyes now on Jackson Hole in August for the next hand wringing exercise in “evaluating substantial progress”.

My take: Even if they announce some sort of roadmap they won’t taper this year. One 10% correction, heck 7% correction, and it’s all off the table as more “uncertainty” suddenly makes the rounds. Jay Powell doesn’t want another Q4 2018. Not on his watch.

For the Fed remains market dependent and not data dependent. And so when Mohammed El-Erian asks: Is there an exit from QE:

The answer is a resounding no. Powell already hinted at maintaining the balance sheet for years when/if they taper. There is no plan or commitment to ever reduce it again. That experiment failed in 2018 and the ECB & BOJ didn’t even try. They’re all trapped & won’t admit it. That truth is self evident in the charts:

How do you unwind something like this without causing a giant equity and economic collapse? Occam’s Razor: You can’t. And hence no central bank is even pretending to speak about it. And no media organization is even bothering to ask them. Taper is a performance act to pretend to get back to some path of normal. News flash: There is no path to normal. The opportunity was there in 2017-2019 and they all failed to take advantage of it at the time and now the Fed has doubled its balance sheet again since last year. They couldn’t extract themselves from a $4.5 trillion balance sheet without blowing up markets. They sure as hell won’t be able to from an $8.2 trillion going on $9 trillion balance sheet. Game Over. Don’t play again.

What then does the future hold? Well, you heard it from Mohammed El-Erian: “the Fed will most likely continue to disconnect asset prices even more from fundamentals. Wealth inequality will worsen more. The Fed’s monthly purchases of $40B of MBS will continue to price people out of the housing market.”

How is this the Fed’s mandate? How will this accomplish anything other than fracture society even further to the core? How does propagating an ever larger asset bubble promote financial stability? Baffling. Investors won’t care about these questions at the moment as the gains keep coming. The questions will only get asked once the damage of the distortions will become self evident. By then it may be too late.

For the latest public analysis please visit NorthmanTrader. To subscribe to our market products please visit Services.

All content is provided as information only and should not be taken as investment or trading advice. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. For further details please refer to the disclaimer.

Categories: Market Analysis, Opinion

37 replies »

  1. Jerry and his band of criminals have made themselves rich, why should they care? That explanation of transitory inflation was classic clueless Jerry.

  2. Fed chairman job description for 2022:

    Must feel comfortable to sit in a trap from the first day.
    Must administrates 10 years old shit.
    Talking weird bullshit in press conferences.
    Should have the balls to buy tons of stocks and push the interest rates into negative territory.

  3. You are so on point Brother! There is no plan at all because as you have stated when your this deep you can never climb out, as no Math formula can back you out of distortions that are now the normal? I will add that Retail in now all in so this idea has played out! Most every body here see’s Powell/FED can never stop so fear is gone as all feel any back fill or dip will just be bought back at 50dma as are new rule for support. Sven I do love your work and are one of the smarts person in the room, your wife’s chart work is the best! Could you unblock me on Twitter as not sure why it happen but for give me if you be so kind!

  4. The course is laid out – QE infinity – but what happens when centrifugal market forces takes over, well outside the control of central banks spinning the wheel. Forces that we can’t predict because we’ve never been there.

    Or does history indeed rhyme ?

    Populism, revolts, war, political and societal upheaval, depression hyper inflation.

    What’s the end game Northman ? That could be the most important question of our time, because it will affect our lives deeply.

  5. Sven, you overestimate the power of central banks….I know it does look like that their endless money printing does push markets higher….but why then is the NIkkei not at 100.000 since the BOJ has been printing for so much longer? Why are EU stock so underperforming US stocks even tough the ECB prints endlessly too? Markets are way too powerful to be controlled….and the next crash will make that clear once and for good.

    • ….it’s the extraordinary impact of the FANG stocks that has made this market so out of the norm. Apple is large than the DAX….Amzn larger that the UK FTSE….MSFT larger than France….the FANGs combined is larger than the Nikkei. So, the key is those 6 companies….basically the NDX. This is the most important index to watch.

    • The BOJ OWNS a large portion of the Japanese stock market, as well as having negative interest which actually flows as far as the savings of the individual. That their fiat currency is consider a ‘safe’ place to put money is astounding! Their whole society is in decay, due to low birth rates, and the refusal to permit immigration. They suffer in a similar way to China, demographically, although not as severely.
      So, to keep this game of charades going in the USA, you will have to accept that the US Fed will start buying a minority (generally up to around 46%) of the share market issue, to continue to support the market, as Japan does. You will have to accept ‘lost’ decades of growth, as Japan has done. The BOJ is THE biggest single share holder of the Japanese market!
      Is that REALLY how you see a democratic, free market, nation, and system, working??? It is a corruption of the WHOLE system, and this is occuring gradually across the world, as the illusion of free markets is destroyed by bank/banker/central banker actions.

  6. We are about a year and half into a 7 to 10 year destruction cycle. The world is having a societal, cultural and morale breakdown. I am 100% certain that the financial and housing markets will completely collapse all over the world. I just don’t know exactly when we hit the pivot point and then all of a sudden, without warning, DOWN THE RABBIT HOLE WE ALL GO. The destruction, poverty, loss and hopelessness will be everywhere.

    • yes, I agree. Morally, ethically, financially, ecologically…the whole world is deeply sick…and on the road to self-destruction. Humanity deserve no better. We totally screwed it.

    • Terry, that is a probable outcome, as the distortions destroy what we have come to know as ‘currency’ ‘wealth’ ‘security’ ‘free markets’ are all destroyed by the actions of banks/bankers/central bankers, who repeatedly tell us they are saving us, whilst actually saving themselves. Of course our ‘honest’ politicians will also be doing their best to protect our (their) wealth, and power. The societal, cultural, and moral impact f this is feared by those with the power, hence you are seeing crackdowns in totalitarian regimes like China; you are seeing power plays in less complete totalitarian regimes like Russia (with Putin as leader for life). You are seeing the disruption of stability on South American, especially places like Venezuela, where Socialism has failed, with the vacuum filled by dictatorship.
      You are seeing rampant inflation in many countries (which are being described as failed States, which is amazing, as the blatant corruption is evident within the ‘leadership class’ of MANY Western countries), which throw around these descriptions for ‘other’ countries. The inflation rates of many places such dispersed as Venezuala, Labanon, the Sudan, Syria, Argentina, and Zimbabwe are up there, and accelerating.
      Big Chinese debtors are wobbling, as China has used ‘public’ companies to Government debt funded initiatives (various levels of Government), without a backup for the corporate debt created.
      We are seeing housing priced out of the hands of the target market, with ‘big business’ buying in, and simply turning the enters into long term debt slaves of private corporations.
      Everything is running on debt. Everything is reliant on cheap money (or negative interest), or REAL negative rates.
      We are living in a trap created by the greed of the rich, and powerful; the coil keeps getting wound tighter, the biggest question is when the financial mechanism explodes. You can get very poor betting against it; it can go a VERY long time before finally exploding.
      And it may be that those with the power will direct the energy of that explosion at us, whilst preserving themselves. A controlled explosion, if you will. That is an even greater fear. You will own nothing, and you WILL be happy!

  7. For systems like this, it is always an exogenous event that precipitates collapse. What could that be?

      • Corrupt money, an aging population, disruptive digitalisation, reduced labor productivity and changes in social structures are the main causes of the current economic problems. Bitcoin is an answer to these developments. If it is also the solution, is another story…

  8. Its pretty simple actually, inflation gets out of control over the next 6 to 10 months. Then, once everyone begins to die from the Vaccine “Side effects” or purposeful effects of being killed , money velocity will slow down and as all the dead people’s assets are liquidated massive deflation will destroy asset prices, stocks, houses, BTC, and the Bonds which are backed by? Population.

    • I like the way you think. Nearly half the world’s population keeling over thanks to failing the marshmallow test on the injection into the bloodstream of the ticking-timebomb substance will be one helluva ride for a 99% decline in the real estate market.

  9. Reposting my Fed night conversation from Sven’s last public post here…

    MrMarket: You know what ya doing Jay, right?
    JayPowell: Of course, M, everything’s fine.
    M: I need some convincing J.
    J: Why so, M?
    M: Well you’re setting up a housing bust, that didn’t turn out well in 2008.
    J: I don’t think so M.
    M: …then a bond bust
    J: Don’t worry on that score, we can just buy ’em, M
    M: …then an interest rate spike
    J: That could prove troublesome
    M: …then a debt crisis
    J: Like I said, could be troublesome
    M: …and somewhere along that line I’m gonna have a big tantrum.
    J: There’s no need for that M, really no need.
    M: Well J, time to admit it: you ain’t got a clue, have ya?

    The Fed are clearly NOT following their explicit mandate, they are out of control and something needs to be done about it else they imperil the entire financial system. They have become the primary problem. No Fed is better than its current incarnation. $1 trillion in overnight reverse repo today is a clear symptom of things seriously out of whack. If the punchbowl is not drained, and fast, the risk is things will rapidly spiral out of control.

  10. Let’s be clear here…..after watching the spineless questions from so called professional people…joke ! fed powell is doing exactly what he wants as nobody has the balls or courage to challenge him….pathetic to the worse degree America has become nothing more than a zombie state, no future and no backbone. To allow a brain dead President to be in charge of your country who is more corrupt than Powell tells you that if America isn’t already the laughing stock of the world it soon will be with the most evil corrupt people in charge this will end one way … destruction of the USA

    • evrey country in the world has been captured by central banks….ECB, BOJ, BOE….this is not only in the US!

  11. Perhaps a Sven should have questioned him instead of those mindless puppets….I feel for the real people of America but how on Earth have you allowed things get so bad ? Come on America stand up and fight !!!

  12. Powell will always have a job for the simple fact that no one shovels BS better than he can. BS is all the financial world has left…along with lots of 1’s and 0’s representing what ‘used’ to be money.

  13. “Because popping the largest asset bubble ever would result in a catastrophic reset, not only a recession, but a depression.”

    You mean a ‘market’ depression because the data proves we’ve been in an economic depression since 2004. Google ‘Shadow Stats Slternate GDP’. We’ve had negative growth for 17 years. If that’s not the official definition for a Depression I don’t know what is.

  14. Sven, how is this the Fed’s mandate you ask? It’s simple really:

    MAXIMUM ASSET PRICE STABILITY is achieved through a relentless yet controlled inflation of all asset prices so that the bottom 99% will be priced out of actually owning anything. This in turn achieves MAXIMUM EMPLOYMENT by ensuring the the bottom 99% never achieve the financial freedom to stop working.

  15. Sven, at least 90% of the population is totally clueless what central banks are doing around the world. If they would know…they would massively revolt. And the central banks are simply trapped: if they stop printing….the whole thing simply collapses…and eventually it will as the financial markets are much bigger than all the printing….and interest will skyrocket higher

  16. No, Sven, it’s not Jay, nor even Janet, that’s in charge. It’s good ol’ Mr Market who’s been in charge for at least 13 years now – which you would have realised if you’d read my J-M conversations here over the last few months. He’s the hands working the Jay and Janet puppet show and, by inference, he’s GS, JPM, MS etc. Gawd help us all.

  17. Thanks, Sven. You’re one of the few people out there who is telling it how it is. I don’t see us getting out of this either in any other way unless there’s an apocalyptic economic collapse, and that’s a scary thought.

  18. What will it take to jolt this market out of its relentless liquidity fuelled upward grind? Perhaps we have our answer: the Taliban! Dunno how I could have missed that, ’twas staring me in the face for near 20 years, lol.

    • …or maybe it’s because, for the first time in cricket test match history, both England’s opening batsmen were out for a duck.

    • Wrong, Agric, wrong! Not even the Taliban can fight the Fed. Next time there’s a conflict – send in the Fed! But only if you can afford it, after all 20 years of the US military in Afghanistan cost only about $1 trillion…

      MrMarket: Hey, J, put it there!
      JayPowell: High five, M!
      M: Not even a few hundred thousand Islamic militants can take us down, J.
      J: We have God and Money on our side, M.
      M: Speaking of that, how much did today cost, J?
      J: Well, we won’t know for a few months at least.
      M: I don’t suppose anyone will notice, on top of the $8 trillion.
      J: Not sure if that number’s right, M.
      M: No worries, J, I believe Zerohedge and maybe Sven are keeping a tally.
      J: LOL, that’s fine M, no one believes them.

      Well it just goes to show
      Things are not what they seem
      Come on, Sister Morphine
      Turn my nightmares into dreams

  19. M: Hey man, what’s with this tapering this year ‘Could Be Appropriate’?
    J: Just reporting what FOMC meeting said, M.
    M: Your neck in an effing noose ‘Could Be Appropriate’.
    J: I don’t like you taking that tone with me, M.
    M: Do I give a fig what you like or don’t, J?
    J: I hope you do, M, I thought we were buddies.
    M: Were could be the operative word, J, if there’s any more taper talk.
    J: OK, M, point taken.

    I kinda disagree with you Sven on the Fed response to a 10 or 20% market decline. Unless the US economy (not the stock market) starts to crater I think a majority of the rank and file FOMC members may strongly resist any further QE or QE like response. There is a growing sense that bond buying (especially mortgage) is seriously distorting markets, that it and absurdly low interest rates can’t continue indefinitely, and that a renormalisation must occur.

  20. Beware New Yorkers and southern New Englanders: storm Henri is now (at 11am ET Friday) scheduled to make landfall on western Long Island Sunday afternoon, probably as a hurricane and with a 2 to 5 foot storm surge. Especially if it drifts further west and / or slows down a little and landfalls nearer high tide there could be significant flooding.


This site uses Akismet to reduce spam. Learn how your comment data is processed.